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Orange CEO Says ‘No Money’ in Europe as Carriers Fight Rules

Oct. 9 (Bloomberg) -- Europe has become stifling for
expansion and investment in the telecommunications industry, and
new regulations cutting roaming charges will only make things
worse, according to executives from the region’s giants such as
Orange SA, Vodafone Group Plc and Deutsche Telekom AG.

“Our main problem in Europe is that we have no growth,”
Orange Chief Executive Officer Stephane Richard said in
Brussels. “Europe has to accept the idea that the price for
services, for new technology, for mobile broadband, for fiber
will need to increase a little bit. If not, I don’t see how we
could manage; there is no more money in Europe.”

Carriers are rebelling against proposals by European Union
Commissioner Neelie Kroes to eliminate roaming charges while
standardizing some regulation, such as the allocation of
spectrum. Her goal is to encourage data use, increase investment
and make Europe more like a single market. Carriers say they’re
being deprived of an important revenue source in a difficult
market amid price wars and weak economies in several EU
countries.

“Bringing down barriers is ultimately good for the
sector,” Kroes said in a keynote speech yesterday in Brussels
at a conference hosted by the European Telecommunications
Network Operators’ association. “But you can’t do that without
removing roaming surcharges, without removing the arbitrary high
charges for calling across borders.”

Infrastructure Investments

European telecommunications companies have invested 2
percent less annually on infrastructure in the last five years,
meaning 3.5 billion euros ($4.7 billion) less was spent in 2012
than 2008, according to a survey by Boston Consulting Group
commissioned by ETNO.

Carriers’ revenue is also expected to fall as much as 2
percent a year in the industry until 2020, for a cumulative
decline of as much as 190 billion euros, according to the
report.

Orange shares rose 0.3 percent to 9.68 euros at 9:23 a.m.
in Paris. Vodafone fell less than 1 percent to 216.85 pence in
London, and Deutsche Telekom was down less than 1 percent to
11.13 euros in Frankfurt.

Carriers want more freedom to consolidate and less
regulatory oversight over aspects of their networks, such as
what technology they can run on their networks or how much they
can charge other companies to use their infrastructure,
executives said yesterday. They say they need the freedom to
consolidate within markets to stabilize prices.

Consolidation Incentives

“There is very little in the proposals that concretely
allow us to drive further consolidation,” Philipp Humm,
Vodafone’s head of Europe, said at the conference.

Even so, the industry’s frustration with regulators may be
driving an increase in share valuations as mergers and
acquisitions pick up for the industry across Europe, said Robin
Bienenstock, an analyst with Sanford C. Bernstein.

“The regulation event has proven to be so inordinately
time-wasting and frustrating and dead-end that you’re starting
to see companies act,” Bienenstock said at the event. “The
regulations are so lousy that people are starting to act in
spite of it.”

Orange’s Richard said that while he previously wouldn’t
pursue deals because he was convinced regulators would reject
them, he’s decided the best strategy is to test the market with
deals to find out what regulators will tolerate.

‘Cannot Compete’

“We cannot compete in our environment anymore,” said
Timotheus Hoettges, deputy CEO of Deutsche Telekom. “Europe is
at a scale too small to be relevant.”

Hoettges said that the major European carriers would all
have to combine to have a market capitalization comparable to
AT&T Inc., the biggest U.S. phone company. Dallas-based AT&T has
a market value of about $175 billion.

With antitrust scrutiny making consolidation tough,
carriers are expanding services as a way to grow, with mobile
operators adding television and fixed services to increase
monthly bills and customer loyalty. Vodafone agreed to buy
German cable company Kabel Deutschland Holding AG this year to
add more services in its biggest market.

Telefonica SA is testing competition regulators’ tolerance,
attempting to take over Royal KPN NV’s German unit to merger
their local companies. The deal, which would cut the number of
German carriers to three from four, is seen by Richard and
others in the industry as a bellwether for consolidation.

Kroes doesn’t see her proposals as standing in the way of
consolidation, she said -- they may even help encourage it
ultimately.

“We have listened to industry concerns, so that pan-European deals can come onto the market, sustainably, available
for all as soon as possible,” she said.